California Water Bond Funding Will Begin to Flow

Two years ago, Californians voted to pass Proposition 1, a $7.5 billion general obligation bond, also known as the Water Quality, Supply, and Infrastructure Improvement Act of 2014. As part of developing a comprehensive water plan for California’s future, Proposition 1 provides $2.7 billion of continuously appropriated funds for the Water Storage Investment Project (“WSIP”) through a competitive grant process.

The California Water Commission (“CWC”) is the state agency that has been charged with overseeing the allocation of the funds. The CWC is currently accepting written public comments through March 14, 2016, and accepting concept papers until March 31, 2016. The CWC must develop regulations to quantify the public benefits of water storage projects by December 15, 2016.

Stakeholders considering projects should participate in the rulemaking process. Submitting concept papers allows proponents to interact with the CWC in order to identify potential eligibility issues or flaws before the extensive two-step application process begins in 2017. Even though the CWC will not make initial funding decisions until 2018, proponents would be well-served to start formulating their projects and identifying the potential types of public benefits offered as soon as possible.

Details on Bond Funding

Though final project guidelines will be approved by December 15, 2016, the California Water Code clearly defines the applicants eligible for WSIP funding: ?
— public agencies;
— nonprofit organizations;
— public utilities;
— federally-recognized Indian tribes;
— state Indian tribes listed on the Native American Heritage Commission’s California Tribal Consultation List;
— mutual water companies; and
— for CALFED surface storage projects, local joint powers authorities, per Water Code section 79759(a)-(c).
See Water Code § 79712.

Projects eligible for WSIP funding are:
— CALFED surface storage projects;
— groundwater storage projects and groundwater contamination prevention or cleanup that provides water storage benefits;
— conjunctive use and reservoir reoperation projects; and
— local or regional surface storage projects that improve the operation of water systems in the state.
See Water Code § 79751

Traditional forms of storage, such as reservoirs, will certainly play a role. But a less visible method of storage – groundwater recharge and storage – is aiming to become more important as Californians seek to develop a more diversified and resilient portfolio of water resources.

As a matter of comparison, according to research published by the Stanford Woods Institute for the Environment, surface storage from all the major reservoirs in California combined is less than 50 million acre-feet, while the groundwater basins throughout the state provide an estimated capacity of as much as 1.3 billion acre-feet.

Also, the cost of groundwater recharge projects is about one-sixth the cost of creating an equivalent amount of space behind a dam. Of course, these amounts depend on how much water is available, but groundwater storage appears to be a promising option.

Therefore, it only seems natural for groundwater sustainability agencies (GSAs) to seek WSIP funds as part of their groundwater sustainability plans. However, GSAs who seek to do so should note that WSIP funds will be distributed most likely in 2018, whereas sustainability plans even for critically overdrafted basins are not due until 2020.

As such, GSAs looking to receive WSIP funding should act quickly and start formulating their sustainability plans now in order to prepare an application in time for consideration. Although there are many types of water storage projects that could be potentially eligible for funds, a crucial aspect of accessing WSIP funds is demonstrating that the proposed project provides public benefits. Indeed, the law mandates that WSIP funding goes solely towards the public benefits provided by any proposed water storage project.

The Legislature requires applicants to prove that their proposed project provides certain public benefits. The list of recognized public benefits is restricted to:?
— Ecosystem improvements;
— Water quality improvements;
— Flood control benefits;
— Emergency response; and
— Recreational purposes.
See Water Code 79753(a)(1)-(5)

Moreover, at least 50 percent of the total public benefit provided by a water storage project must reside in ecosystem improvements. Ecosystem improvements include changing the timing of water diversions, improvement of flow conditions and temperature, and other benefits that contribute to restoring aquatic ecosystems, native fish, and other wildlife.

Finally, a water storage project may only be funded if it “provides measurable improvements to the Delta ecosystem or to the tributaries to the Delta.” Water Code § 79752. In sum, applicants face a high bar to show that their project appropriately provides sufficient public benefits.

Project applicants must complete all environmental documentation and obtain all permits as a condition of funding, but do not need to have the permits at the time of application. Similarly, a final California Environmental Quality Act document must be completed before any funds will be disbursed for a project, but is not necessary for the application. Initial funding decisions will be made in 2018, but the many and diverse requirements give prospective project applicants a lot to think about.

Ultimately, the WSIP grant process will likely face many complications along the way, especially regarding the quantification of benefits. It will be interesting to see how this plays out as California begins to cobble together a comprehensive regulatory approach towards water resources. In the meantime, prospective applicants ought to take a critical look at their project operations and consider how best to frame their water storage projects to offer public benefits sufficient to qualify for WSIP funding.

Craig Moyer is Chair of the Land, Environment and Natural Resources practice at Manatt, Phelps & Phillips, based in the Los Angeles office. His practice focuses on all aspects of environmental and energy law and he regularly advises clients in connection with myriad complex regulatory interactions. Mr. Moyer can be reached at 310.312.4353 or cmoyer@manatt.com.

Connie Lam is an associate in the Los Angeles office of Manatt, Phelps & Phillips. She can be reached at 310.312.4384 or clam@manatt.com. She is the co-author of this story.

This column is part of a series of articles by law firm Manatt, Phelps & Phillips, LLP’s Energy, Environment & Natural Resources practice. The first column in the sixth edition of this series discuss the Export of US Crude Oil.